365 Ways to Live Cheap (10 page)
115. S
IGN
U
P FOR THE
D
O
N
OT
M
AIL
R
EGISTRY AND THE
D
O
N
OT
C
ALL
R
EGISTRY
Another effective way to simultaneously reduce clutter and also reduce the potential temptation of direct marketers is to sign up for the national Do Not Call registry, which informs telemarketers that you do not wish to be contacted by telephone regarding their direct marketing efforts. Visit
www.donotcall.gov
to get started. Similarly, there is an ongoing push for a Do Not Mail registry, which you can find out more about at
http://donotmail.org
. At that site, you can sign a petition to enact a national Do Not Mail registry, plus request that participating direct mailers no longer send junk mail to your home (many are happy to oblige because it cuts down on their costs). Both efforts will save you time in the long run and quite possibly save you money, too.
116. D
ON
’T U
PGRADE
Y
OUR
L
IVING
S
PACE TO
H
OUSE
M
ORE
S
TUFF
One of the biggest reasons that people consider upgrading their home is that they simply don’t have room for all of their stuff. That’s the single worst reason to lay out a huge amount of money for a space upgrade you don’t actually need. If you’re considering upgrading because your stuff is starting to fill up all of your space, take a hard look at that stuff around you and ask yourself how much of it you really need. Then, instead of shelling out a lot of money for bigger housing, put some money in your pocket by getting rid of that unwanted stuff using the tips in this chapter. The less junk you have, the less space you need to live, and the less your housing bill will be.
C
HEAP
T
ACTIC
$
FOR
C
REDIT
C
ARDS AND
D
EBT
119 Consolidate or Refinance Any Debts
120 Visit Your Local Credit Union
121 Confront the Credit Card Companies
122 Resist Temptation to Use Your Card Once You Pay It Down
123 Switch to Using Only Cash and Checks for a Year
124 Construct Your Debt Repayment Plan
125 Try Using the Snowflake Method
126 Know Your Credit Report and What It Means
127 Pay Off Your Whole Credit Card Balance Each Month
128 Use a Credit Card That Actually Benefits You
129 Don’t Sign Up for Store Credit Cards Just for That One-Time Bonus
130 Be Accountable—Use Your Family and Friends
131 Ask about Fees When Shopping for Loans
132 Sign Up for Automatic Repayment Plans for Student Loans
117. F
IND
Y
OUR
M
OTIVATION
Bad spending habits, the kind that result in ever-increasing debt and credit card problems, are usually the child of a bad routine. Humans are beings of habit. We fall into certain routines and it takes a powerful force to knock us out of that routine. To break the habit of consistently overspending and putting things on credit, you need to find that powerful force that motivates you to change. Whenever you go to use the plastic or take out more debt, think about that motivator. Some suggestions: your children (and their future), your dream home, the ability to retire and still have some time to enjoy active life, the shame of having to declare bankruptcy, or the ability to quit your job and chase the career of your dreams. Find that one thing that you want so badly that it hurts, then recall it every time you pull out the plastic.
A great tip:
Glue a picture of that motivation to the front of all of your credit cards, so you have to see it each time you head to the checkout.
118. K
NOW
W
HAT
Y
OU
O
WE
The first step is to get a grip on your total financial situation. Create a master list of every debt you have, including the total balance on that debt and the interest rate you’re being charged. List everything, including credit card debts, student loans, mortgages, car loans, furniture loans, and personal loans. You need to get a complete picture of what you owe before you can start getting rid of your debt. Remember, every dollar you pay in finance charges or interest is a dollar lost. To truly live cheap means to pay no finance charges or interest at all.
119. C
ONSOLIDATE OR
R
EFINANCE
A
NY
D
EBTS
Are there any debts on that list that you may be able to consolidate with others at a lower interest rate? Outstanding student loans are usually a good place to start looking, as consolidation can sometimes significantly reduce your overall interest rate and lower your monthly payment. You may also be able to refinance your home mortgage to a lower rate (if you can lower your rate more than 1 percent in the first five years of your mortgage, it’s well worth it), or consolidate many of your high-interest credit card debts into a home equity line of credit. You may even want to look at transferring credit card balances to new cards with a 0 percent balance transfer offer. Your goal should always be to move the highest interest rate debts first; the bigger the gap between your old interest rate and your new interest rate, the better. Remember, though, these are solutions to make repaying your debt easier, not a tool with which to get more easy credit to charge up those cards even higher.
120. V
ISIT
Y
OUR
L
OCAL
C
REDIT
U
NION
If you don’t know where to begin, the place to start is your local credit union. Explain your situation in detail and tell them that you’re seeking to move your high-interest debt to something with a lower rate. Credit unions often have many options available and typically have the strongest rates in your local area, plus they often provide free financial advice for a person trying to deal with debt. Consider your local credit union as the first stop when thinking about how to fix your debt situation if it’s starting to get out of control.
121. C
ONFRONT THE
C
REDIT
C
ARD
C
OMPANIES
If you still have high-interest credit card debts left after such consolidation, it’s time to actually start confronting the credit card companies. This isn’t unusual, particularly with younger people who don’t have many accumulated assets. The first step is to flip your credit card over and call the number on the back. When you get someone on the line, state very clearly that you would like the interest rate on this card reduced because the rate is making it difficult to pay off the card, and that you are considering transferring the balance to another card. If the first person says no, ask to speak to a supervisor, and keep escalating until you hear a positive answer. Rinse and repeat for all of your cards and your finance charges will be greatly reduced, meaning you’ll have smaller minimum payments and more breathing room each month.
122. R
ESIST
T
EMPTATION TO
U
SE
Y
OUR
C
ARD
O
NCE
Y
OU
P
AY
I
T
D
OWN
All of these efforts are nice in that they reduce your monthly bills by reducing the interest rates, and likely you’ll be able to start paying down your cards faster. If you did some balance transferring, it’s also likely that you have a lot of free credit available already. Don’t use it. Using credit cards beyond your means is what got you into credit card trouble in the first place. It’s not merely a method to allow you to keep living beyond your means. It’s an opportunity to get out of the hole and not worry about your debt ever again.
123. S
WITCH TO
U
SING
O
NLY
C
ASH AND
C
HECKS FOR A
Y
EAR
One method to keep your hands off the credit cards is to switch to using only cash or checks (or a debit card) for all of your purchases for a year. This forces you to get in touch with your money again. Without plastic, you’re forced to carefully consider each purchase that you make and verify that you do in fact have enough money for that purchase before you make it. Some ideas:
Don’t destroy your credit cards, but instead freeze them in a block of ice. Just pour a small pan about a third full of water and freeze it. Then toss your credit cards on top of the ice and pour on some more water, then freeze it again. Your cards will be frozen in the middle of that cube, inaccessible unless there’s a real emergency; any time you think about getting them, you’ll have a long time to consider it as you melt (or break) the ice.
Remove your credit card numbers from any online sites you use regularly. If you use your credit card for billing on iTunes or on Amazon (or anywhere else), remove your credit card number and, if you must, replace it with a debit card number instead so the money comes straight from your checking account.
124. C
ONSTRUCT
Y
OUR
D
EBT
R
EPAYMENT
P
LAN
The next step to take to get your debt in order is to construct a plan for getting rid of it. Each month, you’ll need to make minimum payments on all of your debts, as well as a larger payment on one of the debts. A debt repayment plan is mostly just a decision on the order of debts you’ll repay and the amount you’ll pay extra each month. The key to the plan is that you’ll need to do this without racking up additional significant debt. Here are some ideas:
The “debt snowball” method was made popular by personal finance radio host Dave Ramsey. With that plan, you always focus on paying off the debt with the lowest balance, so you can feel the success of eliminating debts on a regular basis. When a debt is paid off, you “roll” the payment you were making on that debt (the old minimum plus the extra you were making) into extra payments on the next debt on the list.
The mathematically optimal method is to focus on paying off the debt with the highest interest rate, regardless of balance, and then “snowballing” the minimum payment onward once you pay off a debt. This method is the best in terms of the amount of money you have to pay overall, but is harder to follow because successes can be few and far between.